If you’re aged 55+, Equity Release is a way to unlock cash tied up in your home and make use of the fact that many homeowners have seen a notable rise in their property values in recent years.
The most common form of Equity Release by far is to borrow against the value of your home — this is known as an Equity Release Lifetime Mortgage.
This works very similarly to a regular mortgage; however, rather than having a fixed end date by which you’ve repaid the debt, you don’t have to repay the loan until you pass away or move into long-term care.
When this happens, your home is sold and the amount you owe the provider is repaid from the proceeds.
An Equity Release Mortgage sees you borrow against the value of your home. How much you can borrow will be determined by your provider. This figure is calculated based on factors such as your age, state of health and the value of your home.
You don’t usually need to pay any interest during the life of the loan. Instead, it’s ‘rolled up’ and repaid when the house is eventually sold, typically when you pass away or move into long-term residential care.
With an Equity Release Mortgage you can either release the money from your home all in one go or in stages, known as a drawdown plan. This means you only ever pay interest on the amount you’ve drawn down, rather than on everything you’ve borrowed.
Paraplanner at Drewberry
There are many reasons people use Equity Release to free up cash from their homes. One big reason is because they don’t want to face the hassle and expense of moving and downsizing.
Some of the most common uses for Equity Release include:
People even use Equity Release to pay for big ticket items, such as a car, to help their children and grandchildren financially or to take a ‘holiday of a lifetime’.
The biggest rule governing whether or not you can use Equity Release is your age — you need to be at least 55 for a Lifetime Mortgage.
Other stipulations include:
Some properties are ineligible because the lender needs to be satisfied that they can re-sell the property later on the open market. This protects both you and the lender by maximising the income you can expect from your home at sale.
If you’re unsure as to whether your property is eligible for Equity Release, check with your provider or your adviser.
As mentioned, Equity Release isn’t right for everyone. There are other options if you need to release capital for retirement, including moving and downsizing.
You may also have savings you could rely on and there is support available from the state if you are retiring with a small pension.
However, for many people Equity Release can prove a valuable lifeline, providing them with a tax-free cash injection in retirement without having to leave the home they raised their family in.
Pros of Equity Release
Cons of Equity Release
Free up cash without having to move, potentially saving you fees for estate agents, surveyors, removals, conveyancing and stamp duty
You’ll still have to pay fees for Equity Release, including fees for solicitors, advisers and surveyors
You don’t need to make monthly payments on a Lifetime Mortgage if you don’t want to during your life
The interest charged on a Lifetime Mortgage, when rolled up so you don’t repay during your life, can quickly mount up
Equity Release can reduce the value of your estate for inheritance tax purposes
Equity Release reduces the amount your beneficiaries can inherit from your home
With some providers, it’s possible to include an inheritance protection guarantee so you can safeguard a proportion of your home for your heirs
While some people might use Equity Release for inheritance tax planning, if you don’t spend all of the cash released it may still be considered part of your estate anyway
Equity Release can allow you to stay in your own home by funding carers if necessary, or by adapting your home to suit lower mobility
Equity Release may affect your entitlement to certain means-tested state benefits
Some plans allow you to draw down cash gradually from Equity Release, which can limit the amount of interest you pay and the amount you owe at any one time
Equity Release is hard to undo once you’ve entered into it, and may require substantial early repayment charges if you look to repay early
Plans that meet the Equity Release Council’s standards have a ‘No Negative Equity Guarantee’, which means you’ll never owe more than your home is worth at the point of sale
Getting independent advice is an essential part of releasing cash from your property. An independent adviser can look at the entire market to find you the best Equity Release deal, as well as looking at your finances to check your suitability and your overall financial position.
Equity Release isn’t the right option for everyone, so discussions with an adviser are an important part of the Equity Release process. They might be able to suggest alternate means of releasing capital, from drawing down savings and investments to selling up and moving to a smaller property.
Drewberry has partnered with the trusted Equity Release Provider Responsible Life to offer our clients access to the best Equity Release Advice.
Responsible Equity Release was founded in 2010 and is part of the Equity Release Council. It is also authorised and regulated by the Financial Conduct Authority and is one of the largest UK equity release advisers, with access to every single provider across the marketplace. 99% of its reviews on independent reviews website Trustpilot are listed as 5-star.